Economist's forecast: Slow, steady growth for state in 2011

By Staff

Colorado's economy will experience slow, steady growth in 2011, according to economist Richard Wobbekind of the University of Colorado at Boulder's Leeds School of Business.

Wobbekind spoke during the 46th annual Colorado Business Economic Outlook Forum hosted Dec. 6 by CU-Boulder's Leeds School of Business and BBVA Compass bank.

"I think the overall economic picture for Colorado in 2011 is slow, steady growth much like the national economy," said Wobbekind, who currently serves as president of the National Association for Business Economics. "We would all like a more rapid recovery, especially in terms of jobs, but we're just not going to see that yet."

Overall, the forecast calls for a gain of 10,100 jobs in 2011, compared with the more than 140,000 jobs the state lost in 2009-10. Most sectors of the economy will return to growth in 2011, except for the construction, manufacturing, information and government sectors, which will shed jobs, according to Wobbekind.

The strongest sector for projected job growth in Colorado in 2011 is the professional and business services sector, which is home to many high-paying jobs including engineers, computer systems designers and scientific research and development groups. The sector is expected to add 7,000 jobs in 2011, a far cry from the 16,100 jobs the sector added in 2007.

Other leading growth sectors for 2011 include the leisure and hospitality sector with 3,000 jobs added, education and health services with 3,300 added, and trade, transportation and utilities with 3,500 added. Unfortunately, the job growth in these major sectors will not be enough to make much of a dent in the employment problem, according to Wobbekind.

"All the job growth in these sectors is still subpar in historical context," Wobbekind said. "It will not be enough to bring down the unemployment rate in any meaningful way or to create great momentum in the state economy, but at least it is moving in the right direction. It is just moving at a slower pace than we would like."

The two sectors expected to lose the most jobs in 2011 are construction and government. The construction sector will lose 7,000 jobs in 2011. The government sector will lose 1,800 – the first loss in 20 years of detailed sector statistics.

"Looking back to 1990, the combination of state, local and federal employment has always added jobs," Wobbekind said. "One piece might be down, but the total has been positive. That is not the case this year."

In 2010, Colorado didn't experience the recovery that had been anticipated by many economists. From an employment perspective the state lagged the nation in recovery.

"We went in thinking we would be in the top 15 or 20 states for job growth in 2010, but came out in the bottom 10," he said.

Several components are leading to slower job growth as the state struggles to come out of the recession. First and foremost, the recession was a financial recession, not a "real economy" recession, according to Wobbekind. Typically, a real economy recession is the result of the normal business cycle where the economy becomes overheated due to too much investment, which leads to a downturn and then a recovery.

"This recession was very much a financial recession, and there are only a handful of these on record," Wobbekind said. "The financial markets exploded, bubbles burst and we went into a deep downturn that was not just the real economy – housing and jobs – but also the financial economy."

It takes much longer for financial recessions to heal, he said, because the whole finance sector needs to get healthy and start lending again before the economy can return to full health.

"As we've seen, we're out of the recession a year and a half now and we're still not seeing lending back at pre-recession levels," Wobbekind said.

The other part of the recovery is structural in nature. During a downturn, businesses try to figure out how to do more with less until they are sure of profits and their balance sheets are shored up. Productivity then surges. Until productivity goes down and companies need to hire more workers, there won't be much hiring.

"We've seen tremendous investment in capital in the economy in the last year and a half," Wobbekind said. "Companies are buying machines as opposed to hiring people. In the long run this is great for the U.S. economy, but in the short term it is very painful in terms of unemployment rates."

Another major industry in the state, tourism, is going to be in "recovery mode" in 2011, with moderate increases in hotel occupancy rates, room rates, casino revenues and skier visits, according to Wobbekind.

"Unfortunately, there remain a number of concerns in the tourism sector," he said. "The hassle factor is coming up to the top of the list. It's not only driving to the high country, but in terms of flying, between security issues and rising ticket costs, a lot of people just don't know if they want to take it on anymore. But overall, we're still expecting a pretty good year for tourism."

Colorado's unemployment rate for 2011 is expected to increase from 8.2 percent at the end of 2010 to 8.8 percent, compared with a projected national unemployment rate of 9.6 percent.

Compiled by the Leeds School's Business Research Division, the comprehensive Colorado Business Economic Outlook for 2011 features forecasts and trends for 13 business sectors prepared by more than 90 key business, government and industry professionals.

To view the entire economic outlook for Colorado in 2011, including an overview of each of the state's major economic sectors, click here.